While life sciences M&A activity surges in today’s markets, the shift in regulatory enforcement priorities, constant innovation in technology, and strategic growth opportunities are changing the way dealmakers are approaching and structuring these high stakes deals.
In their latest CLE, “Earnouts & Antitrust Challenges in Life Sciences M&A,” Fenwick’s Victoria Lupu, David Michaels, Tom Ensign, and Meredith Mommers summarized the latest trends and legal nuances in life sciences M&A.
Earnout structures will remain prevalent but challenging to achieve. Earnouts, where additional consideration is paid based on future performance milestones, are ubiquitous in life sciences M&A. Data presented show that over 90% of biopharma deals include earn-outs. However, the achievement rate is much lower, with only around 25% of earn-outs actually being paid out.
Earnout terms may include more concrete measurements. Recent litigation regarding ambiguous earnout conditions ultimately led to a buyer having to pay damages exceeding $1 billion. As such, sellers should be wary of relying too heavily on the implied covenant of good faith, which is rarely successful in court. Buyers, meanwhile, are increasingly seeking robust protections to mitigate the litigation risk.
Expect continued aggressive antitrust enforcement. The first Trump administration took an aggressive antitrust stance in healthcare and life sciences, challenging high-profile deals. Although the Biden administration was more vocal about novel theories of harm, the overall volume of investigations and enforcement actions did not significantly increase. Antitrust agencies under a second Trump administration may return to traditional antitrust theories of harm, such as focusing on horizontal mergers and acquisitions of potential rivals, but they might also be more open to negotiated settlements to address competitive concerns.
Be prepared to proactively engage with regulators as you navigate the evolving landscape. Early and transparent communication with antitrust authorities can help identify, assess, and mitigate potential issues, and carefully structuring transactions to address competitive overlaps may facilitate faster regulatory approvals.
